It is quite a challenge to pin down an electricity system that has grown 10.8 percent annually over the last decade, doubled power generation in just 7 years and added 80-90 gigawatts (GW) – the equivalent of the United Kingdom’s entire generating capacity –every year.

Nevertheless, some preliminary year-end statistics recently published by central agencies (NEA, NBS, CNREC) offer an interesting, though imperfect, snapshot of China’s power sector in 2013.

Notably, after a lull in 2012, electricity demand growth recovered last year owing to resurgent industrial demand. Coal retained its share in terms of capacity factor, while wind saw a rise in capacity factors indicating that some measures to improve integration have had an impact. The “Big Five” state-owned generating companies – which collectively own 47 percent of Chinese generating capacity – made record profits in 2013, and the top electricity regulator was rolled into the top energy policy body in an attempt to streamline oversight.

Let’s take a spin through the 1,250 GW Chinese electricity system…

Electricity demand rebounds with heavy industry-led growth

In 2012, electricity demand growth fell to 5.6 percent, its lowest rate since 1998. In contrast, 2013 saw electricity growth regain 1.6 percentage points, to 7.2 percent growth for the year. While GDP grew at the same 7.7-7.8 percent rate in both years, last year’s surge in electricity demand was driven by an uptick in heavy industry-led growth. Crude steel production grew 7.5 percent compared to 3.1 percent in 2012, while the automobile production sector grew 18.4 percent, almost three times faster than in 2012. As over 70 percent of electricity production in China goes to satisfy industry demands, this readjustment drove national power sector demand (see figure, throughout, historic data is from the CEC – China Electricity Council.)

In addition to increasing output, over the last decade the degree of electrification of China’s industry has steadily risen. In 2001, 20 percent of industry’s energy needs were serviced by electricity. By 2010, this had risen to 28 percent, surpassing the US for the first time. The other primary industrial energy fuelstock is coal, which at 56 percent in 2010, is significantly larger than US industry’s biggest fuelstock, natural gas, which stands at 40 percent of energy inputs (data from IEA, as compiled by LBNL China Energy Databook, Table 9B.6).

New coal capacity dips as hydro utilization falls

In 2012, new generation from coal slowed to a near standstill as wind, hydro and nuclear all had historic years. Last year, with less precipitation and more electricity demand to meet, coal-fired generation reversed its 2012 decline, maintaining historic levels of utilization. Chinese statistics typically measure utilization in terms of “full load hours”, which similar to capacity factor gives an indication of how much electricity is generated per unit capacity.

Based on these low utilization levels, as I noted last summer, coal-fired power is likely in an overcapacity situation and checking the construction of new coal-fired capacity should be a government priority.

In 2013, in line with these conclusions (as well as meeting 2015 renewable capacity targets), new renewable energy capacity additions surpassed thermal installations for the first time (thermal and hydro data from NEA, wind from CNREC, and an early solar prediction from CREIA).

In terms of total capacity on the grid, thermal dipped below 70 percent (see table, figure).

As has been pointed out, looking at capacity numbers alone is misleading because of the varying utilization rates (Three Gorges Dam, at about one-fifth the capacity of China’s wind sector, has generated 700 TWh of electricity, more than all the cumulative wind installations in China to date). However, less coal capacity does translate into more integration space for renewables. This is because of the cost recovery mechanisms built into the Chinese power sector, which guarantee each coal plant a certain amount of generating hours each year. More coal plants on the system means less demand that can be met by other sources.

As seen in the full load hours data, wind also saw an increase in capacity factor in 2013, possibly as a result of improved measures to reduce curtailment, which is one of two big systemic challenges facing China’s wind sector. The sector also made noticeable progress addressing its other key challenge – grid interconnection – as both new installations grew and the percentage of non-connected capacity fell (see figure).

2013 reversed this trend however: owing to falling coal prices and generating companies’ increasing reliance on fixed annual contracts, the Big Five posted CNY 74 bn ($12 bn) in profits from all their operations, their highest in twelve years (the exact breakdown of profits from thermal generation is unavailable). On other hand, new thermal additions from the Big Five only constituted one-fifth of total new thermal investments in the Chinese power sector, as the major gencos ceded space to other state-owned firms.

Michael is a MS candidate and pre-doctoral student in engineering systems at the Massachusetts Institute of Technology. Prior to MIT, he was the US-China Climate Policy Coordinator at the Natural Resources Defense Council in Washington, DC, where he analyzed clean energy developments and helped coordinate advocacy strategies in both countries. In 2008-9, he was the recipient of a Fulbright ...

As a European based portfolio manager, I distrust Chinese econ data for obvious reasons. Most of the media coverage is negative at present (current account, secondary banking system, GDP slowdown etc). Yet your piece on electricity demand makes me think ONE this is a more reliable indicator as it represents real demand in the real economy that is hard to be cooked by The Party and TWO the Chinese economy is actually doing much better than most market commentators think. What are your views on these 2 points?

I spent quite a bit of time at a coal plant on the Yellow River (Jingyuan) way back in 1995. The performance and reliability of the four roperating units, even then, was surprisingly good. So good that I could not believe their statistics. However, I did interface with their management and operations people, and I can assure you they knew their stuff.

I can still remember spreading the drawings on the floor and kneeling down with the Communist Party Secretary and an interpreter, to identify the systems and structures of the existing units. We planned to build and operate a two unit addition. As it worked out, we financed them, and they built them with almost no technical assistance. THEY HAVE COME A LONG WAY, And they have done it through sheer determination.

The official generation stats for 2013 from CEC have not come out yet (will post when they do). For Jan-Nov 2013, you may consult: http://www.cec.org.cn/guihuayutongji/gongxufenxi/dianliyunxingjiankuang/2013-12-17/113992.html